CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money.

Softbank breaks Japanese IPO record

Summary: Japan's Softbank raised $23.5 billion in its recent IPO, bringing the total to just shy of the record $25bn set by Alibaba in 2014.

SoftBank Corp. just set a new record, becoming the largest ever IPO in Japan. The Japanese telecom business of SoftBank Group Corp. raised $23.5 billion after being fully subscribed, including an extra allotment. This brings the IPO just shy of the record $25bn 2014 Alibaba IPO and makes it the second-largest ever stock listing, even though shares were mostly sold to local investors.

Shares were priced on December 10 at 1,500 yen/share ($13.25) and an additional 160 million shares were sold to meet strong retail demand, according to a regulatory filing. The expected listing date is December 19.

The company allocated over 80% of the IPO sale to domestic retail investors, according to Reuters. To generate investor interest, the deal was heavily marketed in a campaign that also used TV adverts to attract subscribers. Yield-starved Japanese retail investors have lapped up Softbank’s promised 85% payout ratio and 5.4% dividend yield. In a country where interest rates are negative and savings yield very little, the 5.4% yield (which outpaces competitors NTT Docomo and KDDI) has been an easy sell. However, there are a number of issues that investors should be wary of.

The IPO comes at a difficult time for investors, not least because of recent market volatility. The telecom industry in Japan has faced considerable pressure as the government is looking to slash mobile phone charges, asking for rates to be cut around 40%. This regulatory pressure is also combined with increased competitive pressures as e-commerce firm Rakuten plans to enter the wireless mobile market.

As Rakuten have announced plans to enter the market, incumbent NTT Documo is raising concerns about a potential price war by announcing price cuts. The entry of a fourth mobile network operator could cause significant competitive price pressures and crimp earnings for the incumbent operators, Softbank included. This could call in to question future cash flows and the sustainability of the 85% payout ratio.

With the dark clouds brewing on the horizon for the Japanese telecom industry, the prospect of increased profits for Softbank may be slimmer. With this in mind, it is worth digging deeper into Softbank’s balance sheet where we see that the company has only managed to boost net income in recent years due to tax cuts and reduced deferred tax payments. With competitive pressures looming, this may not bode well for Softbank in the future.

Another concern is the parent’s (Softbank Group) 67% stake in the company. Softbank group has a large amount of debt. The ownership stake could create governance issues in the future as the group has previously used cash from its wireless division to pay down debt. According to LightStream Research analyst Mio Kato on SmartKarma, SoftBank Group has absorbed 3.1 trillion yen in dividends from its wireless unit over the last three years — and yet its debt – outside Sprint Corp. and Softbank Corp. itself – has surged by 1.7 trillion yen in that time. If this were to happen this would also call into question Softbank Corp’s future profitability and dividend yield.

The 85% payout ratio is ambitious regardless of the threat of price wars and government regulation. Given the downside risk to the dividend and the tough competitive environment, the offering is likely overvalued at 1,500 yen/share. Despite the strong retail interest at present, it is likely that this euphoria will wear off with time.

Due to coronavirus controls, with many of our staff working from home, we are not able to meet with clients in our reception at present, unless by appointment in exceptional circumstances. We remain at your service on the phone and email details below. Thank you for your understanding.

*Please expect very long waiting times on the line when calling us, we advise you to send us an email instead.

Trade responsibly All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

Your browser cannot display this website correctly.

Our website is optimised to be browsed by a system running iOS 9.X and on desktop IE 10 or newer. If you are using an older system or browser, the website may look strange. To improve your experience on our site, please update your browser or system.